Identity theft complaints climb again in 2012

Identity theft remains a scourge. The U.S. Federal Trade Commission’s Consumer Sentinel Network Data Book reports dramatic increases from 2011. Here are the stats you can use as ‘leading indicators’ to help your organizations, clients and communities.

The FBI recently reported that it broke up a credit card gang for allegedly creating thousands of phony identities to steal at least $200 million in one of the largest-ever credit card fraud schemes. The U.S. Department of Justice (DOJ) charged 18 between the ages of 31 and 74 with one count each of bank fraud. Each could be required to pay a $1 million fine and be sentenced up to 30 years in prison if found guilty.

According to the FBI, the defendants allegedly made up more than 7,000 false identities by creating fraudulent identification documents and credit profiles with the major credit bureaus, pumping up the credit of the false identities by providing false information to the credit bureaus about the identities’ creditworthiness, running up large loans using the false identities and never paying back the loans. Of course, the higher the fraudulent credit scores, the larger the loans the fraudsters could obtain.

The fraudsters allegedly used sham companies, complicit merchants and black-market businesses to pull off their crimes. They purchased millions in gold, expensive cars, electronics and clothing. They set up bank accounts in Romania, China, Japan, Canada, the United Arab Emirates, India and Pakistan to wire millions of dollars. (See “Eighteen People Charged in International $200 million Credit Card Fraud Scam.”)

This credit card fraud case is representative of the thousands of identity theft cases that victims, law enforcement agencies and other organizations report to the Federal Trade Commission (FTC) and are listed in its annual Consumer Sentinel Network (CSN) Data Book, which it began in 1997.

According to the CSN, it received more than 89,906 additional identity theft complaints in 2012 from 2011 (279,226 to 369,132) — a significant increase. Though the figures have fluctuated yearly, we can conclude (as I’ve done in years past) that identity theft hasn’t abated and will continue to be a major problem for consumers and businesses.

Dr. Joseph T. Wells, CFE, CPA, founder and Chairman of the ACFE, said in his keynote addresses at the last two Annual ACFE Global Fraud Conferences that identity theft and cyber crime are continuing fraud trends.

In 2012, he said that social media sites, tablets and smartphones often contain account information and other personally identifiable information (PII) that can be compromised through hacking and malicious software. “It is a truly dangerous world for your privacy and is bound to get worse,” he said.

In 2013, Dr. Wells said that we all know “that there is really no such thing as a secure computer — one that can’t be eventually hacked. We’ve all read of data thefts of million upon millions of individual records. Most of these are committed by international gangs, which make them exceedingly difficult to prosecute.”

RIPPING OFF THE MILITARY

A new feature in the 2011 CSN report and continued in 2012 is the inclusion of complaint data from military consumers. That data is included in several tables incorporating complaints by consumer military branch, pay grade and status.

Identity theft complaints from military consumers significantly increased from 2011 — 19,814 extra (4,976 to 24,790) or 37 percent of their total complaints in 2012 compared to 27 percent in 2011 (compared to 18 percent and 15 percent for the general population respectively). However, more alarming is that their total complaints have increased about 500 percent from 2011.

Identity theft fraud complaints from enlisted military increased significantly from 30 percent to 41 percent (1,967 to 7,607) of their total complaints. Officer military have increased slightly from 30 percent to 33 percent (390 to 1,133). Compared to the general population, it’s quite obvious that the military consumers are having significantly more problems with identity theft issues. (Note, the total enlisted and officer complaints don’t equal the total identity theft complaints because many respondents didn’t designate their military status.)

CSN FIGURES ARE UNDERSTATED

The CSN figures actually are understated; as I said last year, most identity theft victims still don’t report their experiences to the FTC or any law enforcement agency. Also, many law enforcement agencies don’t share their complaint data with the FTC. Therefore, the identity theft data reported in the CSN is significantly understated for any given year. In fact, the FTC estimates that identity theft claims more than 10 million victims annually.

However, assuming there’s a consistent flow of consumers who report identity theft complaints each year and assuming that the law enforcement agencies that report identity theft do it consistently each year, we can conclude that the CSN identity theft complaint data reported in any given year is representative of the real levels of identity theft. The CSN identity theft data can be considered useful for determining trends not only for aggregate data but for identity theft fraud subtypes. This enables law enforcement agencies to target their efforts to help control specific types of identity theft fraud.

So, I’m going to give you a lot of stats here. Don’t be overwhelmed — you can pick and choose. You can use them as “leading indicators” to help your clients, family members, friends and your communities know the hot areas and how to protect themselves.

To report a complaint, visit www.FTC.gov or call 1-877-ID THEFT (identity theft complaints) and 1-877-FTC-HELP (fraud and other complaints). Check out the 110-page CSN report.

CSN LAY OF THE LAND

The CSN Data Book includes annual unverified identity theft, fraud and other complaints that are:

Voluntarily reported by consumers using the FTC web site or one of its toll-free telephone numbers.

Shared by multiple state and federal agencies.

Shared by non-governmental entities including the Council of Better Business Bureaus in North America, Catalog Choice and the Center for Democracy and Technology, among others.

The CSN sorts the complaints into 30 categories including “identity theft” (369,132) complaints), 11 “other” categories and the following 18 “fraud” categories (with number of complaints):

Advance payment for credit services (42,974 complaints).

Business and job opportunities (32,496).

Buyers’ clubs (2,125).

Charitable solicitations (3,599).

Foreign money offers and counterfeit check scams (46,112).

Grants (10,257).

Health care (35,703).

Imposter scams (83,896).

Internet auction (29,533).

Internet services (81,438).

Investment related complaints (7,117).

Magazines and book (18,906).

Mortgage foreclosure relief and debt management (33,791).

Office supplies and services (24,210).

Prizes, sweepstakes and lotteries (98,479).

Shop-at-home and catalog sales (115,184).

Telephone and mobile services (76,783).

Travel, vacations and timeshare plans (30,324).

The “other” area, which the CSN started in 2008, includes complaints relating to deceptive practices pertaining to the following 11 categories:

Auto related (78,062 complaints).

Banks and lenders (132,340).

Clothing, textiles and jewelry (2,468).

Computer equipment and software (13,386).

Credit bureaus, information furnishers and report users (29,268).

Credit cards (51,550).

Debt collection (199,721).

Education (3,613).

Home repair improvement and

products (13,432).

Real estate (8,468).

Television and electronic media (41,664).

NOW WE PLOW THROUGH THE STATS

Keep with me; we have a lot of numbers, but they’re important. Since 2008 and through 2012 the CSN has reported more than 8 million “identity theft,” “fraud” and “other” complaints. (Also, the CSN reported more than 11 million “Do-Not-Call Registry” complaints.)

In Figures 1, 2 and 3 (below) we see that 2,061,495 complaints for the “identity theft,” “other” and “fraud” categories were reported in 2012 compared to 1,895,012 in 2011 and 1,467,255 in 2010.

Figure 1

Figure 2

Figure 3

(Except for 2012, the data shown in Figures 1 and 2 represent adjusted data, which is more accurate for comparison purposes. Why? Because when the complaint data is reported for any given year it doesn’t include all the complaints for that year because some agencies report their data too late to be posted. The “late” data is used when that year’s data is adjusted in the following year’s report.)

Figure 1 shows a shift from previous years in the percentage of complaints within each of the three main classifications with “identity theft,” “other” and “fraud” accounting for 18 percent, 30 percent and 52 percent respectively. Comparable percentages were 15 percent, 30 percent and 55 percent for 2011 and 17 percent, 27 percent and 56 percent for 2010.

A total of 67,018 military consumer complaints were reported in the total CSN data in 2012 compared to 18,644 in 2011 — a significant increase. This included 27,790 (37 percent), 30,828 (46 percent) and 11,393 (17 percent) complaints for the “identity theft,” “fraud” and “other” categories respectively in 2012 compared to 4,976 (27 percent), 11,186 (60 percent) and 2,424 (13 percent) in 2011.

Compared to the percentages for the three complaint categories for the total CNS complaint data, the military consumer complaint data differs dramatically and significantly. For example, the “identity theft” category complaint percentage for the military consumers was more than double (37 percent versus 18 percent) that of the total CNS reported identity theft complaints. In a similar fashion, the military consumer complaint percentages for the “other” category were significantly less (approximately 17 percent versus 30 percent) of the total CNS reported “other” complaints whereas the percentage of complaints reported for the military for the “fraud” category somewhat less (46 percent versus 52 percent) than the total CNS reported “fraud” complaints.

Figure 3 shows a relatively dramatic increase in identity theft complaints for 2012 with 369,132 reported compared to 279,226 for 2011 (adjusted from 279,156). This places the 2012 complaint data at a record high — beating the previous record high of 314,595 reported in 2008.

COMMON IDENTITY THEFT FRAUDS

How do fraudsters use the PII of identity theft victims to commit fraud? The following analysis should help to answer this question.

The major types of identity theft-related frauds and their complaint percentages in 2011 and 2012, respectively, include “credit card fraud” (14.3 percent and 13.4 percent), “government documents or benefit fraud” (46.4 percent and 27.4 percent), “phone or utilities fraud” (13.4 percent and 9.7 percent), “employment-related fraud” (8.4 percent and 5.4 percent), “bank fraud” (8.7 percent and 6.4 percent), “loan fraud” (3.1 percent and 2.4 percent), “other identity theft fraud” (23.7 percent and 18.5 percent) and “attempted identity theft” (6.8 percent and 6.6 percent). (These percentages don’t add up to 100 percent in either year because some of the complaints included more than one type of identity theft.)

To go a little deeper into the analysis, we need to look at the changes in the percentages noted above.

Credit card fraud The CSN report shows that the total credit card fraud complaints actually increased from 39,929 to 49,463 — a significant amount — while their percentages of total identity theft complaints decreased from 14.3 to 13.4 percent.

The differences are attributed to the changes in their related subtype categories. For example, the subtype category “new credit card accounts fraud” complaints accounted for the majority of the overall increase as they increased from 23,734 to 32,484 (from 8.5 percent to 8.8 percent of the total identity theft complaints) while “existing credit card account fraud” complaints category increased insignificantly from 16,195 to 16,980 (from 5.8 to 4.6 percent).

The total credit card complaints are up significantly, and it probably would be much worse if it weren’t for the effectiveness of increased public awareness programs sponsored by financial and governmental agencies, which help to educate individuals about the use and protection of credit cards and credit card applications. However, identity theft related to credit card fraud was still a major problem in 2012; it accounted for 13.4 percent of the total reported CSN complaints.

“New credit card accounts fraud,” which accounted for 8.8 percent or 32,484 of the total identity theft complaints, is intolerable; it’s something that can be reduced dramatically very easily.

Entities typically market new credit cards through the mail via “pre-approved” credit card offer applications, many of which are directly stolen from mailboxes and through careless disposal by consumers. Individuals can opt out of the “pre-approved” credit card offers sent through the mail by visiting www.optoutprescreen.com or by calling 1-888-5657-8688. If more people used the service, identity theft related to “new credit card account fraud” would decrease significantly.

CSN showed 3,538 “credit card fraud” complaints for military consumers in 2012, which was approximately 14.3 percent of their total identity theft complaints, compared to 1,317 and 20 percent in 2011. This is similar to “credit card fraud” for the total complaint data for the general population, i.e. 14.3 percent compared to 13.4 percent.

The subtype category “new accounts credit card fraud” accounted for 9.2 percent or 2,290 of total complaints for military consumers in 2,012 (compared to 16.6 percent or 827 in 2011), which is comparable to the 8.8 percent reported for total “new accounts credit card fraud” for the general population. “Existing accounts credit card fraud” for military consumers accounted for 5.1 percent or 1,258 of their total complaints for 2012 (compared to 490 or 9.8 percent in 2011) or slightly more than the 4.6 percent recorded for the general population’s total “existing credit card fraud.”

Military consumers are having difficulty protecting their existing credit cards and handling “pre-approved credit card offer” applications; their credit card complaint numbers have increased more than 300 percent overall compared to 25 percent for the general population. However, the increase in the rate of occurrence in credit card fraud is disturbing for both groups and needs to be curtailed with accelerated educational programs.